Richard Harrington, key adviser to Chancellor Jeremy Hunt and chair of the Harrington Review, said most of the UK's competitors "have about 12% of GDP in business investment, both domestic and foreign".
Meanwhile, the UK's equivalent stands at 10%, which represents a difference of £50bn a year. To tackle that gap, he recommended the creation of a new business investment strategy by spring 2024.
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In the review documents, presented alongside Hunt's Autumn Statement on Wednesday (22 November), he said: "We have heard time and again about government systems that are too often disorganised, risk-averse, siloed and inflexible when it comes to the needs of modern investors.
"We have developed a system where civil servants and politicians alike will do anything to de-risk a decision, by shoving financial decisions to a series of semi arm's length institutions as well as a series of ‘competitions' as a system of allocating taxpayers' money."
Harrington said the current system is "all too slow and cumbersome" and the government needs to provide a "fast, tailored, responsive and comprehensive offer", which meets the expectations of investors.
Part of this is due to the government's organisation into different and separate departments, causing confusion for potential investors, he said.
As a result, Harrington called for a cross-government model to "break down department silos". He recommended appointing a senior minister to head up the new business investment strategy at a cabinet level, "with dedicated cross-government machinery to deliver it here and abroad".
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He added the prime minister's investment council could play a central role in the strategy to further engage with institutional investors and allow them to inform its strategic approach to investment.
He also called for a "fundamental shift" in the current culture, to "transform the way government operates".
Such change would also include the creation of a new investment committee to oversee the delivery of the business investment strategy, chaired by the chancellor and with the business secretary as deputy chair. The cabinet office, Number 10 and other relevant secretaries of state should also take part, he said.
Harrington pointed to the investor support given to the Office for Investment after its launch in 2020, calling for its expansion, arguing it could play a key role in the business strategy in the future.
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He added: "We know that when government invests, the private sector follows, and that £1 of government investment can unlock between £7 and £9 of private sector investment. This shows that when we are proactive, we can achieve great things in partnership with business."
Harrington concluded that the review's recommendations amount to a "more joined up version for the UK's investment landscape", ensuring that the incentives of government and business are aligned, with a shared objective of economic prosperity for the UK.
He said: "The review's recommendations have the potential to deliver a first-class investor experience. Creating this experience for investors will open up new financing flows to support the UK on its way to achieving the vision of a modern, high-growth economy that the prime minister, chancellor and secretary of state for business and trade have made their aim."